How To Prepare For A Stock Market Crash?

stock market crash

How To Prepare For A Stock Market Crash

The US stock market finally dropped BIG TIME, all within a few days and now bounced nicely today.  I’m VERY thankful for all of this volatility that we’ve been sorely lacking (unlike long-term investors, we traders LIKE big ups AND downs, as it creates opportunity)

Download the key points of this post as PDF.

You subscribers know the stocks I am long on and am watching overnight tonight, due to their solid first-green-day pattern.  But, here’s a video I made a few days ago, before the big Monday stock market crash.  I’m posting it below, along with a transcription of the video for my valued deaf trading challenge students, because it’s SO useful to know how to prepare for a market crash and not lose your ass.

Congrats to SO many of you Trading Challenge students who didn’t lose your asses over the past few days and now you’re in a position to capitalize on this bounce, just like I am and be prepared if and when another crash happens, which seems likely soon:

What’s up, guys? Tim Sykes here. It is the weekend. The Dow just had its worse week in over two years. The S&P 500 had its worst week in two years and…oh. This is the right ticket. My bad. We’re still up so much. A lot of you guys are freaking out and, frankly, I mean this is just the past 200 days. If you actually want proper perspective to see how much we’re up, I mean, look at this. We’ve had dips before and we’ve always come back. A lot of you guys are asking me, “Is this the end? Is this finally gonna be the one that has a big crash?” I don’t know. I don’t play market guessing games. I take it one trade at a time.

Those of you who watch my watch list, you know, I’ve been warning about BitCoin…and actually video lessons, too. I’ve been warning since BitCoin failed to really balance around $12,000-$13,000 it was not a good buy for me. The cool thing is there’s still a lot of BitCoin and cryptocurrency stocks that are hot, but BitCoin itself, this is a very bad pattern and it usually ends pretty badly if it’s going to follow the typical penny stock pump pattern. Now, will it actually do that? I don’t know. All I know is that it doesn’t fit my pattern and when there are no stocks or no assets that fit my pattern, I do nothing.

I traded very little last week. If you look at my watch lists, this was…this is time stamped, by the way, in case some of you are like “Oh, you’re just saying this now.” No, this was time stamped. This was on January 31st, so this was a few days ago at midnight. So this was Wednesday night going into Thursday’s market and remember the stock market didn’t really drop big until Friday. And I was preparing. The big drop didn’t come out of the blue, okay? BitCoin has been fading. The momentum in a lot of these speculative penny stocks has been fading the past few days. We had a ridiculous, ridiculous January but..lighten this up. But the good news is that this is healthy. We need a little consolidation.

You just have to be aware and you have to play things safely. Now is not the time to be a hero and I said this. Sometimes, you know, usually I focus on tickers but sometimes I put a paragraph before the tickers and I say, you know, “You just need to be careful.” And I said this going into Thursday’s market. Long before Friday’s big drop and I said “Be very careful on longs right now. The overall market just got crushed yesterday for the first time in a long while” and this was when, I think, the Dow was only down, like, 200 or 300. This was before it dropped, you know, 600 plus. And I said “This is the first big drop in a long while and it’s not sad. It’s a good thing because we’re way overextended and consolidation is healthy. That said, we’ve barely dipped off the ridiculous highs so I’d be extra careful right now if this is indeed a big trend change, which is possible. I easily could be wrong, as I’ve underestimated this bull market for years, but I like being safe rather than sorry.”

And now a lot of people are messaging me like “How did you know?” You never know anything for sure, but I’ll tell you this kind of a ridiculous run-up where I think it was over 400 days, 400 plus days, where the market has not dropped more than 5%. We are due and that’s not to say that this is definitely going to be a big crash but we were due for a dip. We’re due for consolidation and, frankly, I don’t know how much further we have on the downside. And, frankly, I don’t care. I take it one trade at a time. I am ready if and when a pattern comes up and a good trade comes up, but right now I don’t see anything so I simply sit in cash. I simply sit and wait and this freaks a lot of people out, but for me, the best trade is often no trade at all. Sometimes there’s just not good enough odds either way and that’s, frankly, how I’ve grown my account into millions from just thousands. That’s how my top students have grown their accounts into millions from thousands.

It’s learning to have patience when you don’t have the right setup, and that’s very difficult, especially when you have a small account and you’re like “Oh, I’ve got to trade every day. I’ve got to grow it.” Sometimes the best trade is no trade at all. Leave a comment, if you understand that, underneath this video lesson. Say sometimes the best trade is no trade at all. It is a trade. You’re trading. Just not taking any positions. You’re trading the option for taking a potential position. I know this is getting confusing but, long story short, cash is king. The best trade for me, right now, is to not trade and I’m making a trade. My trade is that I am trading off the potential…I don’t even know what I’m saying anymore. The best trade is no trade at all. Okay? You don’t have to move your cash all the time. Sometimes it’s better just to sit and wait and be prepared.

Too many people have cash invested at all times and then they get hit, and then they’re like “Oh my God. I need this market to come back. If it comes back to the highs, then I’ll sell.” And some people are like “Oh, you know, this is the big crash” and they’re so sure and yet, really, the odds are so bad to play market guessing games. You know? What, are you gonna just bullshit your way through life and dress up in a power suit and go on CNBC and try to, you know, earn 2%-3% management fees and try to fake your way to managing billions of dollars like most of Wall Street? That’s shit. That’s a bullshit life and that’s why CNBC’s ratings are at multidecade lows. That’s why most people on Wall Street are going to hell.

Don’t play bullshit guessing games. I’m sorry to be harsh but it’s true. You don’t know what’s gonna happen right now. Not one person in the entire world knows what is gonna happen right now to the overall market, so why play that game? I know it’s fun to guess, like, who’s gonna win the Super Bowl. Oh, look at the Vegas odds. Oh, I have, you know, great admiration for Tom Brady. Oh, I think Brady’s too old. Like people just play these guessing games that they can’t control, where there’s no good odds, and it makes them feel alive, you know. Like maybe the odds don’t apply to them. Maybe statistics don’t apply to them. Maybe they can just, you know, skirt by and it feels good, like, if you bet on the underdog.

But for me, I don’t want to play low odds guessing games. I don’t bet on sports. I don’t like to gamble because I want to grow my money in a very meticulous way, and that way is waiting for the right patterns to appear. Waiting for the right opportunities and when the market is dropping like this and we could have an absolute bloodbath this coming week, there are no truly great setups that merit the risk. There are no truly great setups that want me to say “Hey, you know what? Let me put my money to work into this unpredictable environment.” That’s just not how I roll. Three out of four stocks follow the market, so if you don’t know where the overall market is going, you have to be extra careful. And right now I don’t know. I don’t know if this is the beginning of the end or if this is just a dip like it’s always been for the past few years.

It could go either way. You could make a case for either one. A very good case, mind you, and when I don’t know, I don’t do anything. So a lot of you guys are like “Oh, what about this stock? What about this stock? What about this stock?” No stock matters right now if the overall market continues to plunge, okay? You could have the strongest stock with the best news. You could have this company that used to sell pet food and now it’s getting into BitCoin and cryptocurrency and, you know, it still won’t spike because the overall market matters. So respect the overall market, be prepared, be ready, and don’t try to be a hero. Sometimes you have to lose the battle to win the war, and that means sometimes trading the opportunity for making an actual trade and instead, trading that opportunity and staying in cash.

That was the point I was trying to make before, you know. You don’t actually have to risk your cash. You don’t actually have to risk your money to make a trade. Sometimes you can trade that and just say no. You know, like how some parents tell their kids just say no to drugs. Well, I’m saying no to low odds on predictable setups because, again, if you understand this video lesson, leave a comment saying “Sometimes the best trade is no trade at all.” And I know you want your money to work for you but your money is not going to work for you with a guessing game. You will never get rich playing guessing games. You will never get rich, you know, following an ugly bald guy on CNBC who’s right 35% of the time. You just won’t. Statistically, numerically, logically you cannot play guessing games to consistently turn a few thousand into a few million dollars like me and my top students have done.

If it was just me, I would understand. You know, you go “Oh, Sykes got lucky. Okay, I’ll ignore him.” But now I have several millionaire students who have done the seemingly impossible and we are all using the exact same strategy. We’re using the exact same rules. Not necessarily trading the exact patterns or the same stocks, but the same kinds of rules apply. You wait for the best opportunities. Whether you like going long or short, whether you like dip buying or shorting into morning spikes, whether you like holding for a minute, an hour, a day, or a week, we all have different personalities and yet one thing remains the same, there are high odds patterns and there are low odds patterns. And right now, given the unpredictability in the overall market, there are no high odds patterns. The Dow could very easily drop another 500, 1000, maybe even 2000 or 3000 points in the coming days, in which case no stock would be safe if that happens. And that very well could happen and that still wouldn’t be that bad overall in the long term because we’ve gone up so much.

That’s what people don’t understand. I mean this is two year, but let me just show you five years. I mean we have gone up so damn much and people forget it. Let’s look at 10 years. Look at this. We have not had a real dip since 2008. Ten years. You know, we’ve had little dips here, a little dip here, a little dip here but lately no dips at all. So even if the Dow drops, literally…or this is the S&P 500. Let me show you the Dow. Even if the Dow…right now, at roughly 25,000. Even if it drops to 20,000, we’re still up a ton and yet if that did happen, people would be freaking out. People would be, you know, “This is the end. It’s anarchy.” And yet, a drop from 25,000 to 20,000 would actually kind of be pretty healthy. You know? Especially if it happened over several days or several weeks. I’ve been wanting a crash for a while. Not because I enjoy people losing money, because most people are bullish, but because it would be healthy. It’s good to have volatility and we have not had any in a very long time.

So if you ask me, personally, am I rooting for a crash? Hell yes. I’ve been rooting for a crash for a while. I also just want a break, you know? There have been so many plays and I feel guilty when I don’t take advantage of the plays. The good news about the market dropping is that there are less long plays, more short plays, and I miss short selling. You know, it’s much more logical. It’s much easier but in this bull market, short selling has been very scary. So I want a crash. I’m sorry to be this bad guy but that’s what I want. Am I gonna get it? I don’t know. I’m not gonna try to guess it. I’m not saying there’s definitely gonna be a crash.

What I am saying is that you have to be prepared and you need to keep everything in perspective because a lot of people, you know, ignored this warning that I gave a few days ago. A lot of people didn’t think that BitCoin would drop to $8000. You know, they thought that “Oh, it’s gonna drop to $10,000 and then bounce” and now they’re down 20% on their money in a few days. I don’t want you to lose 10% on your money, let alone 20%, or even risking losing 30% or 40% or 50%. When you have this kind of a market, whether it’s BitCoin or the overall market, you have to play defense. And defense is never as exciting as offense. Everybody wants to win the game, everybody wants offense, most everybody wants the markets to go up. There’s a few, you know, bitter shareholders or short sellers right now who, frankly, have had a very shitty few years and they’re finally excited. You know, they’re on, like, heart palpitation medicine and they’re trying to control their health just so that they can live long enough so that they can take advantage of a bear market.

Is this the beginning of a bear market? Is this the beginning of the end of BitCoin? I don’t know so stop asking me, but I will say that I am ready for a crash. I am ready for a potential bounce. I would be just as happy if there is a bounce. There will be plenty of stocks that have gotten crushed. I mean, literally hundreds of stocks that have gotten crushed the past few days through no fault of their own and if we are due for a bounce, we will have a great bounce. Personally, I am rooting for a dip but, again, that’s just because I’m overloaded and I want sleep, I want less plays, I don’t want to feel guilty, and I think it would be healthy for the market. But, at the same time, I’ve been wanting dips and crashes for years and we haven’t gotten any. So is now finally the time? Again, I don’t gamble. I don’t play these bullshit guessing games.

This is why I don’t have a power suit and I’m not on CNBC and unlike CNBC who, again, whose ratings are at multidecade lows, my subscribers, my students’ success, are at all-time highs. Because I teach what works. I don’t necessarily teach what’s popular. I don’t teach what’s, you know, politically correct and what’s industry correct. I cut through all that bullshit because I’m sick of it, you know. If I had to listen to all of that, I would lose my mind and I don’t want to lose my mind. And I would lose my money and I don’t want to lose my money. So I don’t want you to lose your money, either, so I’m going to teach you what I have learned the hard way over the past two decades, and that is that you must sometimes stay in cash and avoid the guessing games. No matter how tempting it is, no matter how much fun it is to talk about having a position or how much fun it is to, you know, be right if your guess is proven true and how you think that now science and statistics and math don’t apply to you because somehow you’re special, even though you’re not, it’s just in your fucking egotistical head.

I’m sorry to swear, but it pisses me off that so many of you guys are playing guessing games and you think that’s the way to long-term success. It’s not. Right now I am all in cash, waiting for the opportunities, and I will strike when the pattern is predictable. So be ready, get in my chat room, study up. When the market is down like this, you have more free time, you can get better prepared. That’s also a blessing in disguise. A lot of you guys, even if the best pattern pops up tomorrow, you’re unprepared. So a lot of you are playing catch up and you have to study the past so that you can get on my level. Anyways, I’ll see you guys in the chat room tomorrow. Long live this potential crash.